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July 10, 2013

Fresenius USA, Inc. v. Baxter International, Inc. (Fed. Cir. 2013)

Just before the July 4th
holiday, the Federal Circuit issued its ruling in Fresenius USA, Inc. v. Baxter International, Inc. ("Fresenius
II"). The Federal Circuit framed
the question at issue as: "Whether under the reexam statute, the
cancellation of claims by the PTO is binding in pending district court
infringement litigation." But the
question likely at issue for most practitioners in reviewing the case is "When
is the district court's determination considered 'final'?"

The case has a long history dating
back to 2003 when Fresenius filed suit seeking a declaratory judgment of
invalidity of three Baxter patents, including claims 26-31 of the U.S. Patent No.
5,247,434 patent (the only patent and claims relevant to the present
discussion). In 2007, the District Court
granted Baxter's motion for JMOL, finding that Fresenius has presented
insufficient evidence to support the jury's verdict of invalidity of the '434
patent.Fresenius Med. Care Holdings, Inc. v. Baxter Int'l, Inc., No.
03-CV-1431, 2007 WL 518804 (N.D. Cal. Feb. 13, 2007). The Federal Circuit affirmed the District Court on the issue of
validity with respect to the '434 patent, but vacated the District Court's
injunction and post verdict royalty awards and remanded the case back to the District Court regarding those issues. Fresenius USA, Inc. v. Baxter Int'l, Inc.,
582 F.3d 1288 (Fed. Cir. 2009) ("Fresenius I").In March of 2012, the District Court awarded
Baxter post verdict damages at a reduced royalty rate and entered final
judgment. Fresenius USA, Inc. v. Baxter Int'l, Inc., No. 03-CV-1431, 2012 WL
761712 (N.D. Cal. Mar. 8, 2012).

However, the execution of this
final judgment was stayed by the District Court, because while the litigation
was ongoing in the District Court, an ex parte reexamination of the '434 patent
was occurring in parallel in the U.S. Patent Office. In 2005, two years after filing the
declaratory judgment case in the District Court, Fresenius also filed a request
for ex parte reexamination of the same claims of the '434 patent. In December 2007, the examiner entered a
final rejection finding claims 26-31 of the '434 patent invalid as
obvious. This determination was affirmed
by the Board of Patent Appeals and Interferences in March of 2010.Ex
parte Baxter, Int'l, Inc., No. 2009-006493, 2010 WL 1048980 (B.P.A.I. Mar.
18, 2010). The BPAI determination was affirmed
by the Federal Circuit in May 2012. In
re Baxter Int'l, Inc., 678 F.3d 1357 (Fed. Cir. 2012). Thus,
we now have Baxter prevailing before the District Court and Fresenius prevailing
at the USPTO, setting the stage for the present appeal to determine which party
would ultimately prevail. For the majority of the
panel, the winner is Fresenius. For
Judge Newman, the winner should have been Baxter.

Much of the discussion by the
Court focuses on the history of the reissue and reexamination statutes. However, everyone (even Baxter and dissenting
Judge Newman) agrees that in general, when a claim is cancelled through reissue
or reexamination, the patentee loses any cause of action based on that claim,
and any pending litigation in which the claims are asserted becomes moot. Where the real dispute lies is whether or not
the USPTO's cancellation of claims 26-31 of the '434 patent should be given
weight at this point in the District Court litigation.

The majority held that the USPTO's
cancellation of the '434 patent claims rendered the District Court's judgment
moot because neither the 2007 entry of judgment by the District Court, the remand
decision by the Federal Circuit in Fresenius
I, nor the District Court's 2012 entry of judgment was "sufficiently
final." Fresenius II at 20. The
Court distinguished the finality of a judgment for purposes of determining res judicata from the finality of a
judgment for purposes of immunity from the effect of the final judgment in the
PTO proceedings. Id. at 19. While the District
Court's 2007 judgment was final for purposes of appeal and might have been
given preclusive effect in another infringement case between the parties, the Court held that "it was not sufficiently final to preclude application of
the intervening final judgment" in a reexamination proceeding. Id. Furthermore, while the Federal Circuit's
decision in Fresenius I affirmed the
validity of the '434 patent, the Court held that this was also not sufficiently
final to provide immunity from the intervening final judgment of the
reexamination because the issue of post-judgment damages had been remanded back
to the District Court. Id. at 20. The Court followed a traditional analysis of
finality wherein if any issue of law or fact remains, such as the issue of
post-judgment damages in this case, then the decision is not final for purposes
of preclusion. Id. at 20-21.

In her dissent, Judge Newman
took issue with the majority's view of finality. In her opinion, the Federal Circuit's
decision in Fresenius I resolved all
issues of patent validity and created judicial finality. Fresenius
II (Dissent at 12). Judge Newman
opined that finality and preclusion should be imposed as to issues that were
finally decided in full and fair litigation. Id. at 16. "[T]he issue of validity of the '434
patent had been raised, litigated, and decided, with full participation of the
accused infringer; it cannot be relitigated." Id.
at 14. The majority would agree, the
issue of validity of the '434 patent cannot be relitigated -- but, in their
view, it can definitely still be trumped.